SINGAPORE (Reuters) - London copper rose 1 percent on Thursday as the market paused after sinking to a 4-1/2 month low in the previous session on risk aversion triggered by worries about Greece's possible exit from the euro zone. Copper, which has lost almost 10 percent this month, may find support from positive U.S. housing data, although gains were capped as the market remains vulnerable to the implications for the global economy of European leaders' inability to deliver meaningful measures to resolve the region's debt crisis. "Prices of copper have come off quite heavily in recent weeks so there might be some sense that maybe it was an overreaction," said Alexandra Knight, an economist with National Australia Bank. "From my perspective Greece will ultimately stay in the euro zone as there will be a lot of resistance to letting it exit." Adding to the pressure, manufacturing activities in China, the world's top copper consumer, faltered in May, according to the HSBC Flash Purchasing Managers Index. Three-month copper on the London Metal Exchange gained 1 percent to $7,612 per metric ton (1.1023 tons) by 3.01 a.m. EDT, after falling to $7,503 per metric ton on Wednesday - its lowest since early January. The most active September copper contract on the Shanghai Futures Exchange closed up 0.3 percent to 55,150 yuan ($8,700) per metric ton. The total open interest in Shanghai copper contracts stood at 584,278 lots, after the exchange double-counts the trades, near an all-time high of 605,514 lots on May 16. "Prices are near the lowest level so far this year, and it's an increasingly heated battle between the bulls and bears on where the prices should go," said a Shanghai-based trader. Though a deepening euro zone debt crisis, a slowdown in China's economy and a strengthening dollar appear to add more pressure on copper, some industrial users have found prices below 55,000 yuan a metric ton acceptable. "Copper users with low stockpiles think it is okay to buy at 50,000-55,000 yuan level," said Zhu Bin, an analyst at Nanhua Futures in the eastern Chinese city of Hangzhou. "But speculators mostly are betting on lower prices due to the bearish macroeconomic environment." The Shanghai-LME arbitrage window remained tightly shut, with Shanghai copper standing at more than 1,000 yuan lower than LME, but the price difference has shrunk from over 2,000 yuan two weeks ago. Zhu said the gap between Shanghai and LME copper might narrow as the euro zone woes and a strong dollar add more pressure on LME copper prices while domestic market lend some support to Shanghai prices. On the supply side, the world's top copper producer, Chile's Codelco , said its output fell 10 percent in the first quarter from a year earlier to 373,000 metric tons, but added that it was on target to produce 1.708 million metric tons this year.

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